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Flight-to-Diversification: The Effect of Diversification for REITs At Times of High Market Volatility

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  • Heidi Falkenbach
  • Islam Ibrahim

Abstract

At heightened market volatility, investors migrate to safer investments prioritizing risk avoidance over gaining higher returns. Hence the value of safer, less volatile investment appreciates. As diversification diminishes volatility, we investigate whether diversified REITs is considered a safer investment at high market volatility. We find that the effect of diversification on the value and public debt cost of REITs varies with market volatility. At low level of market volatility geographical diversification has a negative net effect on the REIT value. However, as the market volatility increases, this negative impact diminishes. Similarly, we find that at low level of market volatility, geographical diversification has a yield-increasing effect on the debt issues of REITs. But, also, as market volatility increases the yield-increasing effect diminishes. These findings indicate that the value of diversification increases with market volatility.

Suggested Citation

  • Heidi Falkenbach & Islam Ibrahim, 2024. "Flight-to-Diversification: The Effect of Diversification for REITs At Times of High Market Volatility," ERES eres2024-083, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2024-083
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    More about this item

    Keywords

    Diversification; firm value; market volatility; REIT;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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